Introduction
Over the past few decades, developing countries resorted to foreign direct investment (FDI) to facilitate economic growth and promote industrialization practices. Several governments in Central Asia continue to liberalize their local markets to attract foreign investments (Spechler, and Spechler, M., 2009, p.353). For instance, Uzbekistan eliminated most of the trade restrictions that hindered the establishment of multinational corporations in the country's automobile sector (Kuzmina et al., 2014, p.874; Kahouli & Omri, 2017, p.353). Many international firms prefer joint venture (JV) arrangements as a market entry strategy in foreign markets. Man Auto Uzbekistan is an example of FDI that operates as a JV in the Asian state. This paper seeks to establish the effect of FDI on the growth of the automobile sector in developing nations.
Impact of FDI on the Automobile Sector
Since the formation of MAN Auto-Uzbekistan in 2009, the JV which specializes in the manufacture of commercial trucks has had a more desirable impact on the local industry. The venture enables the transfer of technical knowledge that is vital to the growth of the country's automobile sector (Munemo, 2017, p.97). The natives benefit from advanced training from their more experienced German counterparts. MAN Nutzufahrzeuge, the German firm, agreed to offer continuing education to local mechanics on how to conduct proper vehicle assembly. The strategy aimed to facilitate the smooth consolidation of the two firms and bridging any skill disparities that existed. The FDI continues to make significant contributions to the local sector by imparting the industry with valuable knowledge (Paswan, 2013, p.13). The JV has enhanced the competitive position of the native partner OJSC UzAvtosanoat on the international front.
The Role of Joint Ventures
Joint ventures also facilitate the sharing of resources. According to Stoian (2013, p.615), FDI is an essential vehicle of technology transfer that contributes more to economic growth in the automobile sector. Automobile firms in less developed parts of the world benefit from extensive research and technology facilities of their more established European partners. The approach encourages the incorporation of new inputs and technologies in the production systems of Uzbekistan. The MAN Auto-Uzbekistan JV has enabled UzAvtosanoat to enjoy excellent motor vehicle assembly plants that they could not construct because of their limited financial strength. The German party to the deal facilitated the modification of the Sarmakand vehicle factory to march the international standards. Further, the move allowed the two firms to combine their research resources and achieve more success.
FDI and Human Capital
Lessmann (2013, p.95) noted that FDI affects growth endogenously if it generates increasing returns in production via externalities and spillover effects. FDI is an important source of human capital in the automobile sector. According to Yoshino and Abidhadjaev (2017), the increased market competition among vehicle manufactures creates a need for reorganization of the traditional company setups. Modern-day firms must ensure efficient human resource management to remain relevant and profitable (Sirin, 2017, p.1367). JV strategies introduce new management practices and organizational arrangements in MAN Auto-Uzbekistan's production facilities (Raupova et al., 2014, p.76). MAN Auto-Uzbekistan benefits from the different strategic management qualities from the two partners. The JV is by far the most prominent truck manufacturer in the central Asian region because of the top-notch decisions derived through the corporation.
Conclusion
In conclusion, FDI has been critical to the growth of the automobile sector in the underdeveloped countries like Uzbekistan. Through various FDI formations such as JV, the local vehicle assembly industry benefit from shared resources, knowledge and training. The foreign manufacturers from the developed world also bring human capital management efficiency that is essential for the improvement of the automobile industry in the underdeveloped nations. State that does not enjoy extensive financial resources should, therefore, create policies that encourage FDI to promote the local vehicle assembly and manufacturing industry.
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